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Chapter 5: Promoters’ Contracts Prior to Incorporation o petitioner was rendering efficient service before its electric plant was

service before its electric plant was burned, and


25 SCRA 285 - RIZAL LIGHT & ICE CO., INC. vs. PSC and Morong Elec. Co. (1968) therefore, being a prior operator its investment should be protected and no new
ZALDIVAR, J.: party should be granted a franchise and certificate of public convenience and
necessity to operate an electric service in the same locality.
PSC granted Morong Electric’s application for a CPCN. Rizal Light, a prior operator
contested this decision stating that such grant was invalid considering SEC issued Morong ISSUE with HOLDING
Electrics certificate of incorporation months after the decision. SC held that while a franchise WON the franchise granted to Morong Electric is valid despite the fact that such was granted
cannot take effect until the grantee corporation is organized, the franchise may, before Morong Electric’s certificate of incorporation was issued by the SEC – VALID
nevertheless, be applied for before the company is fully organized; a grant of a franchise is  Petitioner: until a corporation has come into being, in this jurisdiction, by the issuance
valid although the corporation is not created until afterwards. of a certificate of incorporation by the SEC, it cannot enter into any contract as a
corporation. The franchise was granted to Morong Electric when it was not yet in esse
is null and void
DOCTRINE  SC: Petitioner's contention that Morong Electric did not yet have a legal personality
McQuillin: “The fact that a company is not completely incorporated at the time the grant is when a municipal franchise was granted to it is correct. The juridical personality and
made to it by a municipality to use the streets does not, in most jurisdictions, affect the legal existence of Morong Electric began only when its certificate of incorporation was
validity of the grant. But such grant cannot take effect until the corporation is organized…” issued by the SEC.
o Before that date, or pending the issuance of said certificate of incorporation, the
Fletcher: “While a franchise cannot take effect until the grantee corporation is incorporators cannot be considered as de facto corporation, but the fact that
organized, the franchise may, nevertheless, be applied for before the company is fully Morong Electric had no corporate existence on the day the franchise was
organized. A grant of a street franchise is valid although the corporation is not created granted in its name does not render the franchise invalid, because later
until afterwards.” Morong Electric obtained its certificate of incorporation and then accepted the
franchise in accordance with tshe terms and conditions thereof. This view is
Thompson (explains reason for these rules^): “…an ordinance granting a privilege to a sustained by eminent American authorities (see doctrine)
corporation is not void because the beneficiary of the ordinance is not fully organized at the  Thus, the incorporation of Morong Electric on October 17, 1962 and its acceptance of
time of the introduction of the ordinance. It is enough that organization is complete prior to the franchise as shown by its action in prosecuting the application filed with the
the passage and acceptance of the ordinance. The reason is that a privilege of this Commission for the approval of said franchise 1) perfected a contract between the
character is a mere license to the corporation until it accepts the grant and complies respondent municipality and Morong Electric and 2) cured the deficiency pointed out by
with its terms and conditions.” the petitioner in the application of Morong EIectric.
 The conclusion regarding the validity of the franchise granted to Morong Electric is not
xxx incompatible with the holding of this Court in Cagayan Fishing Development Co., Inc.
vs. Teodoro Sandiko wherein Court held that a corporation should have a full and
[IMPT] The ruling that a corporation should have a full and complete organization and complete organization and existence as an entity before it can enter into any kind of a
existence as an entity before it can enter into any kind of a contract or transact any business contract or transact any business.
is NOT ABSOLUTE. Under American jurisprudence, a contract made by the promoters o this Court did not say in that case that the rule is absolute or that under no
of a corporation on its behalf may be adopted, accepted or ratified by the corporation circumstances may the acts of promoters of a corporation be ratified or
when organized. accepted by the corporation if and when subsequently organized
o there are exceptions such as the fact that American courts generally hold that a
contract made by the promoters of a corporation on its behalf may be adopted,
FACTS accepted or ratified by the corporation when organized
1. Morong Electric applied for a CPCN with the PSC to provide for electric service in
Morong, Rizal. DISPOSITIVE PORTION
2. In May 1962, Morong Electric was granted a franchise. PSC found that “Morong Electric PSC decision affirmed.
is a corporation duly organized and existing under the laws of the Philippines, the
stockholders of which are Filipino citizens, that it is financially capable of operating an
electric light, heat and power service, and that at the time the decision was rendered DIGESTER: MTR
there was absence of electric service in Morong, Rizal”
3. It was only on October 17 of the same year that the SEC issued Morong Electric’s
certificate of incorporation.
4. Rizal Light, a prior operator, contends that Morong should not have been granted the
CPCN because:
o it did not have a corporate personality at the time it was granted a franchise and
when it applied for said certificate
o it is not financially capable of undertaking an electric service
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